Naumann v. Benefit Strategies W., Inc.
| Decision Date | 21 April 2022 |
| Docket Number | 1 CA-CV 20-0537 |
| Citation | 68 Arizona Cases Digest 26,510 P.3d 513 |
| Parties | Roger NAUMANN, et al., Plaintiffs/Appellants, v. BENEFIT STRATEGIES WEST, INC., et al., Defendants/Appellees. |
| Court | Arizona Court of Appeals |
Gordon Rees Scully Mansukhani, LLP, Phoenix, By Daryl R. Wilson, Counsel for Plaintiffs/Appellants
Evans Dukarich LLP, Tempe, By Steven L. Evans, Gary Dukarich, Nicholas J. Kuntz, Michael D. Malin, Counsel for Defendants/Appellees
¶1 Plaintiffs Roger and Cheryl Naumann (the "Naumanns") appeal the dismissal of their three common law claims, which the superior court found were preempted by the federal Employee Retirement Income Security Act of 1974 ("ERISA"), codified at 29 U.S.C. §§ 1001 – 1461. For the following reasons, we vacate the dismissal of their complaint and remand.
¶2 The Naumanns own and operate the Second Home Pet Resort, L.L.C. (the "SHPR"). They retained David Rosenthal to provide investment advice for SHPR. Rosenthal recommended creation of a pension plan (the "Plan") for the benefit of the Naumanns and SHPR employees. Rosenthal recommended the Naumanns hire Janet Odenwald, the principal owner and professional of Benefit Strategies West, Inc. ("BSW"), to set up and administer the Plan. The Naumanns hired BSW and established the Plan effective January 2013.
¶3 The Naumanns served as trustees of the Plan, while BSW (with Odenwald as the primary service provider) served as the third-party administrator. The Naumanns relied upon calculations performed by Odenwald and BSW to determine the contributions to be made to the Plan and to protect Plan participants’ interests. The Naumanns also relied on recommendations by Odenwald and BSW to maximize tax benefits. By mid-2018, the Naumanns had contributed over $235,000 to the Plan.
¶4 After Odenwald died, the Naumanns learned that the Plan was underfunded by at least $460,000. In 2019, the Naumanns sued Odenwald's estate (the "Estate") and others, but not BSW, in federal district court, alleging Odenwald breached a fiduciary duty under ERISA by failing to provide accurate Plan contribution calculations, which resulted in underfunding of the Plan. The Estate moved to dismiss, claiming Odenwald and BSW provided ministerial services and thus owed no fiduciary duty under ERISA. Relying on a stipulation of the parties that neither Odenwald nor BSW were fiduciaries under ERISA, the district court dismissed the complaint against the Estate with prejudice, adding that the personal representative of the Estate, BSW "and any other related persons or parties not named in this case are dismissed with prejudice as to any federal law claims that have been or could have been brought and without prejudice to any state law claims."
¶5 The Naumanns then filed this case in superior court against the Estate and BSW (the "Defendants"). The Naumanns alleged three Arizona common law claims: (1) BSW breached its contract "by providing inaccurate calculations of Plan contributions"; (2) the Defendants breached an implied warranty "to perform the contract with care and diligence and in a reasonable, non-negligent manner ... by failing to perform their contractual obligations in a reasonable and non-negligent manner"; and (3) the Defendants committed professional negligence by failing to provide accurate Plan contribution calculations.
¶6 The Defendants moved to dismiss, arguing the Naumanns’ claims were barred by express and conflict preemption under ERISA. Attaching the federal court stipulation, the Defendants argued the Naumanns’ claims "are inextricably bound to the ERISA framework and are inherently swept aside by the exclusive authority of ERISA." After briefing and oral argument, the superior court found ERISA preempted the Naumanns’ claims and dismissed the complaint.
¶7 Following entry of final judgment, the Naumanns timely appealed, and we have jurisdiction pursuant to Arizona Revised Statutes ("A.R.S.") §§ 12-120.21(A)(1) and -2101(A)(1).
¶8 We review the dismissal of a complaint for lack of subject matter jurisdiction de novo. Satterly v. Life Care Ctrs. of Am., Inc. , 204 Ariz. 174, 177, ¶ 5, 61 P.3d 468, 471 (App. 2003). Whether ERISA preempts a state law claim is a legal issue also subject to de novo review. Id. We assume the truth of the well-pled factual allegations in the complaint and indulge all reasonable inferences therefrom. Cullen v. Auto-Owners Ins. Co. , 218 Ariz. 417, 419, ¶ 7, 189 P.3d 344, 346 (2008).
¶9 It is undisputed that the Plan is governed by ERISA. See 29 U.S.C. § 1003. ERISA is an "intricate, comprehensive" statute governing employee benefit plans, including pension and welfare plans. Boggs v. Boggs , 520 U.S. 833, 839, 841, 117 S.Ct. 1754, 138 L.Ed.2d 45 (1997) ; see 29 U.S.C. § 1001. ERISA's regulatory scheme is designed to safeguard the establishment, operation, and administration of employee benefit plans by setting forth minimum standards to assure the "equitable character of such plans and their financial soundness." Rush Prudential HMO, Inc. v. Moran , 536 U.S. 355, 364, 122 S.Ct. 2151, 153 L.Ed.2d 375 (2002) (citing 29 U.S.C. § 1001(a) ). ERISA provides "appropriate remedies, sanctions, and ready access" to federal courts when ERISA administrators fail to comply with such standards. See Aetna Health Inc. v. Davila , 542 U.S. 200, 208, 124 S.Ct. 2488, 159 L.Ed.2d 312 (2004) ; Boggs , 520 U.S. at 839, 117 S.Ct. 1754 ; 29 U.S.C. § 1001(b).
¶10 In order "to afford employers the advantages of a uniform set of administrative procedures governed by a single set of regulations," Fort Halifax Packing Co., Inc. v. Coyne , 482 U.S. 1, 11, 107 S.Ct. 2211, 96 L.Ed.2d 1 (1987), ERISA contains "expansive pre-emption provisions, ... which are intended to ensure that employee benefit plan regulation [be] ‘exclusively a federal concern,’ " Aetna Health Inc. , 542 U.S. at 208, 124 S.Ct. 2488 (quoting Alessi v. Raybestos-Manhattan, Inc. , 451 U.S. 504, 523, 101 S.Ct. 1895, 68 L.Ed.2d 402 (1981) ). Although broad, ERISA preemption is not limitless and does not apply to every instance where ERISA and state law happen to intersect. Rather, preemption of state law occurs when a state law claim expressly relates to an ERISA employee benefit plan, known as "express preemption," or when it conflicts with ERISA's prescribed civil enforcement regimes, known as "conflict preemption." See Rutledge v. Pharm. Care Mgmt. Ass'n , ––– U.S. ––––, 141 S. Ct. 474, 476, 479–83, 208 L.Ed.2d 327 (2020) ; Rush Prudential HMO, Inc. , 536 U.S. at 364, 375–80, 122 S.Ct. 2151 ; Paulsen v. CNF Inc. , 559 F.3d 1061, 1081 (9th Cir. 2009). As such, we must determine whether the Naumanns’ three Arizona common law claims, based on the allegation that the Defendants improperly calculated the amount needed to properly fund the Plan, are preempted by ERISA under express or conflict preemption.
¶11 When evaluating whether Arizona law is preempted by ERISA, we must consider "ERISA's objectives ‘as a guide to the scope of the state law that Congress understood would survive.’ " Rutledge , 141 S. Ct. at 480 (quoting Cal. Div. of Lab. Standards Enf't v. Dillingham Constr., N.A., Inc. , 519 U.S. 316, 325, 117 S.Ct. 832, 136 L.Ed.2d 791 (1997) ). Thus, "congressional intent is relevant to the preemption analysis." Bafford v. Northrop Grumman Corp. , 994 F.3d 1020, 1031 (9th Cir. 2021) ; Pilot Life Ins. Co. v. Dedeaux , 481 U.S. 41, 45, 107 S.Ct. 1549, 95 L.Ed.2d 39 (1987).
¶12 ERISA expressly preempts "any and all State laws insofar as they may now or hereafter relate to any employee benefit plan" covered by ERISA. 29 U.S.C. § 1144(a) (emphasis added). " ‘A state law relates to an ERISA plan if it has a connection with or reference to such a plan.’ " Rutledge , 141 S. Ct. at 479 (quoting Egelhoff v. Egelhoff , 532 U.S. 141, 147, 121 S.Ct. 1322, 149 L.Ed.2d 264 (2001) ).
¶13 Not every potential connection with a state law will run afoul of ERISA's express preemption provision. As the United States Supreme Court observed in Rutledge , ERISA is:
primarily concerned with pre-empting laws that require providers to structure benefit plans in particular ways, such as by requiring payment of specific benefits, or by binding plan administrators to specific rules for determining beneficiary status, [or] ... if acute, albeit indirect, economic effects of the state law force an ERISA plan to adopt a certain scheme of substantive coverage.
Rutledge , 141 S. Ct. at 480 (citations and internal quotation marks omitted). Accordingly, a state law claim has "an impermissible connection with" an ERISA plan if the applicable state law "governs a central matter of plan administration or interferes with nationally uniform plan administration." Id. at 476, 480 (citing Gobeille v. Liberty Mut. Ins. Co. , 577 U.S. 312, 320, 136 S.Ct. 936, 194 L.Ed.2d 20 (2016) ). "Crucially, not every state law that affects an ERISA plan or causes some disuniformity in plan administration has an impermissible connection with an ERISA plan." Id.
¶14 Here, the Naumanns’ state law claims do not "govern[ ] a central matter of plan administration" but rather concern a professional services contract with a third-party administrator to perform, in relevant part, non-discretionary, ministerial tasks; namely, calculating contributions "according to the Plan terms" to guide the Naumanns in sufficiently funding the Plan. See Rutledge , 141 S. Ct. at 480 ; Bafford , at 1024–1028, 1032.
¶15 Likewise, there is nothing in the record indicating the Naumanns’ state law claims would "interfere[ ] with nationally uniform plan administration." Rutledge , ...
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